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JONATHAN LUCIANO 
JU LEE 
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English

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Wang, William KS

UC Law SF 
UC Law SF Scholarship Repository 
Faculty Scholarship 
Fall 1-2024 
Offsetting a Roth Conversion with a Charitable Donation 
William KS Wang 
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Published in ABA Tax Times, January 2024. © 2024 by the American Bar Association. All rights reserved. This information or any portion thereof may not be copied or disseminated in 
any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association. ISSN 2381-5868.
Fall • January 2024 • Vol. 43 No. 1
PRACTICE POINT
Offsetting a Roth Conversion with a 
Charitable Donation
By William K.S. Wang, Professor Emeritus, University of 
California College of the Law, San Francisco*
As explained in earlier articles,1 the traditional 401(k)/IRA (traditional account) can be considered 
a joint venture between the employee/retiree and the government. When the employee initially 
invests, the government also can be thought of as putting up money—the otherwise-owed income 
tax on the earned income. It is as if the government collects that tax and then invests it in the joint 
undertaking. The part of the venture the employee/retiree owns is exempt from all income and cap-
ital gains tax and is in effect a “Roth” within the traditional account. The income tax payment on 
conversion of a traditional account to a Roth account is in this view not really a tax but merely the 
fair price of buying the government’s ownership share at current market value. By paying this tax 
with outside money and increasing the employee/retiree’s ownership of the venture to 100%, the 
employee/retiree shifts dollars from a taxable vehicle to a tax-exempt one. In a flat-tax world, the 
conversion is costless and beneficial.2
Despite these advantages, the traditional account is better than the stand-alone Roth account for 
bequests to charities (including a donor-advised fund).3 If an employee/retiree names a charity as 
the beneficiary of a traditional account, the donation at death is not only the employee/retiree’s 
share of the joint venture traditional account but also the government’s portion (generated through 
the government’s initial investment).
The Roth conversion is, however, worth considering for a traditional account for which the owner 
does not plan to name a charitable beneficiary.
With a progressive income tax, the government’s percentage ownership of the traditional 401(k)/
IRA may differ at conversion and would-be distribution. One crude rule of thumb is that conversion 
is advantageous when the government’s percentage ownership (tax rate) at would-be withdrawal 
from the traditional account is the same or higher than at conversion.4 Thus, the conversion may be 
* The author thanks professors emeriti Steve Schwarz and Jack Miller for suggesting this topic and comments, Ronald Yin 
for comments, and professor Linda Beale for excellent edits.
1 See William K.S. Wang, The Tax Efficiency of Taxable Assets, Traditional 401(k)/IRA’s, and Roth 401(k)/IRA’s: The 
Traditional Is a Joint Venture Between the Employee/Retiree and the Government, With the Employee/Retiree’s Interest 
a “Roth” Within, 42 ABA TAx Times, June 2023 [hereinafter Tax Efficiency]; William Wang, Myths About the Traditional and 
Roth 401(k)/IRA That Affect How People Use Them, BloomBerg TAx (Feb. 3, 2020).
2 In March 2023, President Biden proposed eliminating the Roth conversion for high-income individuals and adding 
special distribution rules for high-income taxpayers with large aggregate Roth plus traditional retirement accounts.
3 See Wang, Tax Efficiency, supra note 1.
4 For discussion of why the conversion is still beneficial even if the tax rate at would-be withdrawal is slightly lower than at 
conversion, see Wang, Tax Efficiency, supra note 1.
Published in ABA Tax Times, January 2024. © 2024 by the American Bar Association. All rights reserved. This information or any portion thereof may not be copied or disseminated in 
any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association. ISSN 2381-5868.
ABA TAX TIMES
Fall • January 2024 • Vol. 43 No. 1
undesirable for an individual presently in an elevated tax bracket or if the conversion itself will move 
her into such a bracket.
Instead of paying the tax on a Roth conversion, suppose someone combines the conversion with 
either an equal qualified charitable distribution (QCD) that satisfies part of an annual required min-
imum distribution (RMD) or an equal deductible gift to charity. This piece explores the merits of 
these two strategies. 
I. Use of a QCD
What is a QCD? If an employee/retiree meets the minimum age requirement of 70½, a QCD enables 
her to withdraw up to $105,000 per year5 from a traditional IRA (not a 401(k)) and direct that dis-
tribution to one or more qualified charities other than a donor-advised fund (DAF). That amount 
counts toward the annual RMD, if any. The QCD is not treated as an itemized charitable deduction 
and does not preclude the standard deduction.
A. Basic Example
Suppose a retiree is subject to an RMD from her traditional IRA of at least $100 and that she can 
satisfy $100 of this RMD with a $100 QCD, which she can pair with a $100 Roth conversion. For ana-
lytical purposes, one can view her $100 QCD as having two parts, a $100 taxable income withdrawal 
and a $100 taxable-income-reducing gift to charity. With or without the QCD/conversion combina-
tion, she adds $100 in taxable income.
• Without the QCD/conversion, she has $100 taxable income from the required RMD.
• With the QCD/conversion, she can be treated as having the $100 taxable income 
from the RMD but adding $100 conversion income and subtracting $100 from income 
because of the gift so that her taxable income is still just $100.
Assume further that the retiree is in a 50% tax bracket (for ease of analysis, with no progressive rates 
on different levels of income). With either the $100 RMD or $100 QCD/conversion (with the QCD 
treated as her RMD), she must pay $50 in income tax. 
• With the QCD/conversion, she must use $50 of funds from outside the traditional 
account.
• With the RMD alone (no conversion), she can pay the $50 tax through withholding 
from the RMD and still receive $50 net.
To use the QCD/conversion offset, she must have adequate spare liquidity.
Assume in addition that she does have spare liquidity and that she would use $50 of outside money 
to pay the $50 tax on either the $100 RMD or the $100 QCD/conversion. Although the offset does 
not affect her $50 tax obligation, what does change?
5 Starting in 2024, the annual dollar maximum is indexed for inflation. A new deductible IRA contribution may result in a 
reduction of the maximum annual deductible QCD amount. See Julie Jason, New Rules May Limit Taxpayers’ Max QCDs 
From IRAs, ForBes (Feb. 7, 2022).
Published in ABA Tax Times, January 2024. © 2024 by the American Bar Association. All rights reserved. This information or any portion thereof may not be copied or disseminated in 
any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association. ISSN 2381-5868.
ABA TAX TIMES
Fall • January 2024 • Vol. 43 No. 1
After the QCD/conversion and offset, she has more of both of the following:
• $100 in charitable gift and 
• $100 in a standalone Roth.
She also has less of both of the following:
• the $100 cash distribution (diverted to charity) and 
• $100 in the traditional 401(k)/IRA (which she converted to standalone Roth).
B. Benefits and Burdens in the Basic Example
In the Basic Example, the employee/retiree must decide whether to simply take the RMD or to do 
a QCD/conversion. That requires both weighing the loss of $100 of traditional account against the 
gain of $100 (standalone) Roth and determining the value of making the charitable gift.
1. Weighing the loss of $100 traditional account against the gain of $100 standalone 
Roth account
Remember the initial premise that the traditional account can be considered a joint venture between 
her and the government: the part of the venture she owns is exempt from all income and capital 
gains tax and is in effect a “Roth” within the traditional account. The conversion moved money out 
of the traditional account. For $100 of traditional account, if she is in the 50% tax bracket, the gov-
ernment owned 50% ($50), and she owned the other 50% ($50). Her $50 was a “Roth” within. (To 
be precise, the government’s percentage ownership is based not on her current tax bracket but on 
the one at the time of withdrawal. For simplicity, this portion of the analysis assumes that the two 
are the same.)
As a result of the conversion, she lost that $50 “Roth” within the traditional account (and of course 
also lost the government-owned $50 of the traditional account); but she gained $100 in a Roth 
standalone account. So the net Roth gain from the QCD conversion (at the cost of diverting the 
$100 RMD cash to a donation)6 is:
• $50 in new Roth funds (i.e., the $100 new standalone Roth from conversion minus $50 
pre-existing Roth within the traditional account).
The QCD/conversion has the additional gain of:
• $100 in charitable gift.
2. Considering the value of a donation
Change the Basic Example to Example 2, assuming instead that the employee/retiree received the 
required $100 cash RMD rather than directing it through a QCD to a charity and used that cash to 
pay the tax on a Roth conversion. Had she been in the 50% tax bracket (and the conversion did not 
increase her tax bracket), she could have converted $200 of traditional account to Roth, requiring a 
6 Again, this Basic Example analysis assumes that she uses outside funds to pay the $50 income tax on either the RMD or 
the QCD/conversion.
Published in ABA Tax Times, January 2024. © 2024 by the American Bar Association. All rights reserved. This information or any portion thereof may not be copied or disseminated in 
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ABA TAX TIMES
Fall • January 2024 • Vol. 43 No. 1
tax payment of $100 (made with the RMD). Fifty percent of the converted $200 traditional account, 
or $100, was a “Roth” within. So the net Roth gain from the conversion (at the cost of using the $100 
RMD to pay the $100 tax on the $200 Roth conversion)7 is:
• $100 in new Roth funds (i.e., the $200 new standalone Roth from conversion minus 
$100 pre-existing Roth within the traditional account).
Disregarding the equal cost of the two examples (paid with outside funds), which of the above two 
alternatives is better—the Basic Example from subsection 1, resulting in the $100 in charitable gift 
and $50 in new Roth funds or Example 2 from subsection 2, resulting in the $100 in new Roth funds? 
The answer depends on how much the employee/retiree values the donation relative to the new 
Roth funds. So long as she values a $1 charitable gift more than fifty cents in new Roth funds, $100 
to charity plus $50 in new Roth (with the QCD/conversion) is better than $100 in new Roth (with the 
RMD/conversion).
In any event, with the QCD/conversion offset, the charitable gift subtraction equals the conversion 
income addition. The two cancel regardless of tax bracket, even if elevated. Nevertheless, although 
the analysis assumed a high tax rate of 50%, the offset is beneficial only if she places a sufficiently 
large value on the gift to charity.
II. Use of a Deductible Gift to Charity Other than a QCD
The QCD has some drawbacks. An employee/retiree cannot contribute to a donor-advised fund 
(DAF), donate capital assets, or give more than $105,000 per year (indexed for inflation starting 
in 2024). To offset the cost of the Roth conversion, a possible alternative to the hypothetical $100 
QCD in the Basic Example is a deductible $100 gift of either cash or appreciated capital assets to a 
qualified charity (including to a DAF8), subject to the ceilings on deductibility that are generally set 
in terms of percentages of adjusted gross income.
To deduct a donation to a charity, a taxpayer must itemize. Continuing with the amounts in the Basic 
Example, if the employee/retiree’s standard deduction exceeds her other itemized deductions by 
$100 or more, the loss of that excess means that a $100 deductible charitable contribution will not 
offset the $100 income from a Roth conversion.9 
If the employee/retiree donates an appreciated capital asset, she would—subject to the limitations 
on the charitable deduction of such assets—escape capital gains on the appreciation. Especially 
with bigger gifts, the benefit of avoiding capital gains tax may exceed the downside of losing the 
standard deduction. (Congress has considered repealing the stepped-up basis at death, so this tax 
may become more difficult to avoid.)
To return to the $100 donation and gift, assume that the employee/retiree’s other itemized deduc-
tions exceed the standard deduction and therefore the $100 charitable deduction completely offsets 
the $100 conversion income. Even so, if donating an appreciated capital asset, she could convert 
7 Example 2’s variation on the Basic Example also assumes that she uses outside funds to pay the $50 income tax on the 
RMD.
8 Introduced in 2021-22 but not enacted, the Accelerating Charitable Efforts (ACE) Act would impose new limits on DAFs 
and the deductibility of contributions to them.
9 Donation decisions may also be affected by the automatic return in 2026 of both a more restrictive ceiling on certain 
charitable deductions and the Pease limitation on overall itemized deductions. Congress may also decide, at any time, to 
impose an overall ceiling on itemized deductions.
Published in ABA Tax Times, January 2024. © 2024 by the American Bar Association. All rights reserved. This information or any portion thereof may not be copied or disseminated in 
any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association. ISSN 2381-5868.
ABA TAX TIMES
Fall • January 2024 • Vol. 43 No. 1
substantially more by instead selling the capital asset, paying the capital gains tax, and using the net 
amount to finance the conversion.
Change the facts of Example 2 to a new Example 3. Assume that the employee/retiree has $100 in 
appreciated stock, with a basis of $50, and a capital gain of $50. Assume her capital gains tax rate is 
30% and income tax rate is 50%. She can either sell the $100 of stock and use the after-tax proceeds 
to finance the tax on a conversion or donate the stock and use the charitable deduction to offset a 
$100 conversion.
With a sale of the $100 of stock, she would pay capital gains tax of 30% of $50, or $15. With the net 
after-tax amount of $85, she could pay the 50% income tax on a conversion of $170 from a tradi-
tional account. Of that $170 traditional account converted, 50%, or $85 was a Roth within, so the net 
Roth gain from the conversion is:
• $85 in new Roth funds (i.e., the new $170 standalone Roth minus the $85 pre-existing 
Roth within).
That net Roth gain is equivalent to the $85 income tax paid.
In contrast, had she donated the $100 appreciated stock to a charity and offset the charitable 
deduction against the income from a $100 conversion, she would pay no tax on the stock’s appre-
ciation. On the $100 traditional account converted, 50% or $50 was a Roth within, so the net Roth 
gain from the conversion is:
• $50 in new Roth funds (i.e., the new $100 standalone Roth minus the $50 pre-existing 
Roth within the $100 traditional account).
In short, with the sale/conversion she gains $85 overall in new Roth funds; whereas with the donation/
conversion, she gains $50 overall in new Roth funds and has a $100 contribution to charity (which 
could be a DAF). So long as she values a $1 gift more than 35 cents in additional Roth funding, the 
donation/conversion is better; but as before, if she does not sufficiently value the gift, the offset is 
not beneficial. That is true despite the example’s high tax bracket and advantages of a deductible 
gift’s complete offset of corresponding conversion income and avoidance of considerable capital 
gain on the sale of an appreciated asset.
In any event, the employee/retiree doing a conversion must have ready cash for the Roth conver-
sion whether done alone or offset by a cash gift or QCD. If she does not have this liquidity but owns 
appreciated capital assets, she can instead donate some of them to counterbalance conversion 
income. (This piece will not address the merit of borrowing as a source of funds.)
III. Conclusion
Instead of paying the tax on a Roth conversion, an employee/retiree can completely offset a con-ver-
sion with a QCD (if the QCD satisfies RMD) or fully or mostly offset a conversion using a deduct-ible 
charitable donation of cash or (better still) appreciated assets. Compared to paying the tax on the 
conversion, the result would be both substantially less total Roth funding (counting both stand-
alone amounts and Roth amounts within a traditional account as explained here) and a significantly 
higher combined dollar amount of philanthropic gift plus increased Roth funding. The offset works—
regardless of current tax bracket, even if elevated—but is beneficial if and only if the employee/
retiree sufficiently values charitable gifts. ■


Offsetting a Roth Conversion with a Charitable Donation

Blum, Binyamin

Evidence

Haber, Theda

Pension Employee Benefits

Greer, Margaret

Schwartz, Lois

Remedies Advanced Sack

McFarlane, Robert

Patent Law

Marcus, Richard

Civil Procedure with memo

UC Law SF

Board of Directors Quarterly Meeting - Open Session Book(2) 09/13/2024

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   Executive Committee  
 
DATE:   Monday, October 21, 2024  
 
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4. Student Success Strategies 
 
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Approval of Minutes from September 05, 2024 
 
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